Mixed ILS fund impacts from August storms & hurricanes

As expected, it appears there have been a wide range of results for August among insurance-linked securities (ILS) funds, as severe storm and hurricane activity drove some to suffer losses, while others absorbed the impact within their income and still delivered positive performance for the month.

August saw a particularly heavy toll from catastrophes and severe weather events in the United States, ground-zero for most ILS funds and their exposure to property catastrophe risks. While losses were less well-insured elsewhere around the world that month.

Insurance and reinsurance broker Aon said that August’s catastrophic weather events resulted in over $23 billion of economic losses around the globe, with U.S. storm and hurricane activity a key driver of costs to the insurance and reinsurance market during the month.

Among events seen in August were the midwest Derecho that struck the Iowa and Illinois regions, which is estimated to have cost around $6.5 billion and at least half of this is assumed insured.

Some insurance carriers in the region that were most acutely affected by this event have tapped and in some cases drained their reinsurance provisions, resulting in some losses flowing to a number of collateralized reinsurance positions we understand.

Hurricane season was particularly active in August, with three landfalling storms in Isaias, Marco and Laura during the month.

Hurricane Isaias is seen as up to a $5 billion insurance industry loss by RMS. But Hurricane Marco was much less impactful and is seen as only driving losses in the low-digit millions.

Hurricane Laura’s more severe impacts are seen as at least a $10 billion insured loss by some of the catastrophe modellers, although alone the ILS fund impacts from Laura have not been significant.

Add to this the impacts from wildfires in California, which are by September 23rd estimated to have cost insurance and reinsurance interests of up to $8 billion and this is rising further in recent days. But a lot of the costs came in the August blazes and some impacts are thought to have flowed to ILS funds that month.

The upshot of all of this catastrophe and severe weather activity in August was some ILS funds reporting losses for the month, some being relatively flat, as income covered losses, but others being up for the period as they avoided too much impact in that single period, our sources have explained to us.

As a result, there is likely to be a relatively wide dispersion of ILS fund results, from those invested in collateralized reinsurance and private ILS arrangements, or quota shares, which we’ll see more closely when ILS Advisors reports the August results of its Index in the coming days.

Catastrophe bond funds have been completely unaffected by these August events, so we should expect another strong month of cat bond fund performance and returns.

Timings of booking losses differ, as ever, in the ILS fund market, so some impacts from August events may not manifest in ILS fund results until September, or even later if they glow from aggregate reinsurance structures.

The aggregation of all of these losses continues to erode reinsurance deductibles, we understand. There are also growing concerns over aggregate retrocession and the potential for some losses to flow there, which could have a larger ILS market impact we understand.